Whole Foods Market Reports Fourth Quarter Results

AUSTIN, Texas, Nov. 5, 2014 (GLOBE NEWSWIRE) -- Whole Foods Market, Inc. (Nasdaq:WFM) today reported results for the 12-week fourth quarter and 52-week fiscal year ended September 28, 2014.

Q4 Highlights:

• Record total sales of $3.3 billion, a 9% increase over the prior year
• Record 13 new store openings, expanding into seven new markets
• Comparable store sales growth of 3.1% on top of 5.9% in the prior year
• EBITDA of $296 million, or 9.1% of sales
• Operating income of $205 million, or 6.3% of sales
• Diluted earnings per share of $0.35, a 9% increase over the prior year
• Return on invested capital of 14%

During the quarter, the Company produced $229 million in cash flow from operations and invested $185 million in capital expenditures, resulting in free cash flow of $44 million. In addition, the Company returned $44 million in quarterly dividends to shareholders and repurchased $100 million of common stock, or 2.6 million shares. The Company ended the quarter with total cash and cash equivalents, restricted cash, and investments of approximately $1.0 billion.

"We are pleased with our quarterly and fiscal year results which reflect continued market share gains, record EBITDA, and healthy returns on invested capital," said John Mackey, co-founder and co-chief executive officer of Whole Foods Market. "The last few months have been an incredibly exciting and rewarding time for our company as we opened a record number of new stores and launched several strategic initiatives, expanding choices for our customers and reinforcing our values as America's Healthiest Grocery Store. Collectively, our efforts have led to extremely high team member morale, heightened brand visibility and positive sales momentum."

"Natural and organic products are increasingly available, yet no one offers the shopping experience we offer. We hold the idea of 'food' to a higher standard, banning more than 75 ingredients commonly found in other stores, and we believe our unparalleled quality standards are a large part of why we maintain a broad base of loyal customers and attract new customers aspiring to a natural and organic lifestyle," said Walter Robb, co-chief executive officer of Whole Foods Market.  "As we accelerate our growth, we are evolving and differentiating our shopping experience faster than ever before.  Our leadership in retail innovation is one of our many competitive advantages, and it is exciting to see our new stores from Palm Desert, California to Toronto, Canada perform so well."

The following table provides the Company's comparable and identical store sales results for the fourth quarter and for the first five weeks of the 16-week first quarter. Companies may define comparable and identical store sales differently; thus, growth rates across companies may not be comparable.

Gross margin declined 20 basis points to 35.4% due primarily to a LIFO charge of $5 million and higher cost of goods sold as a percentage of sales, partially offset by leverage in occupancy costs. Direct store expenses improved 21 basis points to 25.2% of sales due primarily to leverage in salaries and benefits. As a result, store contribution was 10.3% of sales, in line with last year's record result.

Additional information for the quarter for comparable stores is provided in the following table.  The Company does not intend to publish this level of detail on a quarterly basis past fiscal year 2014. The Company notes that quarter-to-quarter changes in results by age category are typically attributable to stores shifting between categories.  In the fourth quarter, the less-than-two-year-old category included the fewest number of stores and was materially impacted by a decrease in sales from relocated stores, along with an increase in the number of stores experiencing the "J-curve" effect (cycling over high opening sales volumes). For the first five weeks of the first quarter, comparable store sales growth in this category has returned to double digits.

The Board of Directors today declared an increase in the Company's quarterly dividend to $0.13 per share from $0.12 per share, representing an annual return to shareholders of approximately $188 million. The next dividend is payable on January 27, 2015 to shareholders of record as of January 16, 2015.

Fiscal Year Highlights:

• Record total sales of $14.2 billion, a 10% increase over the prior year
• Record 38 new stores including four acquired stores, translating to 10% ending square footage growth
• Comparable store sales growth of 4.3% on top of 6.9% in the prior year
• Record average weekly sales per store of $722,000
• Record sales per gross square foot of $990
• EBITDA of $1.3 billion, or 9.2% of sales
• Operating income of $934 million, or 6.6% of sales
• Diluted earnings per share of $1.56, a 6% increase over the prior year
• Return on invested capital of 15%
• Cash flow from operations of $1.1 billion and free cash flow of $378 million
• $170 million in dividends returned to shareholders
• 13.9 million shares of common stock repurchased totaling $578 million

Additional information for the fiscal year for comparable stores is provided in the following table.

Growth and Development

In the fourth quarter, the Company opened a record 13 new stores, expanding into seven new markets. The opening schedule was back-end loaded, with nine of the 13 stores open for one month or less in the fourth quarter; on a weighted basis, the year-over-year increase in square footage was 8%. So far in the first quarter, the Company has opened three new stores, including one relocation, and expects to open six additional stores. The Company currently has 401 stores totaling approximately 15 million square feet and expects to cross the 500-store mark in fiscal year 2017. Longer term, the Company sees demand for 1,200 Whole Foods Market stores in the United States.

The Company recently signed 12 new leases, including one relocation. These leases include three new markets and are located in Hoover, AL; Tempe, AZ; Santa Clara, CA; Denver, CO; Destin, FL; Towson, MD; Woodbury, MN; Lancaster, PA; Newtown Square, PA; El Paso, TX; Las Colinas, TX; and Seattle, WA.

The following table provides additional information about the Company's new and acquired stores and total development pipeline for stores scheduled to open through fiscal year 2018.

Fiscal Year 2015 Targets

With the beginning of the new fiscal year, the Company is taking the opportunity to shift its conversations with the investment community. Consistent with its stakeholder philosophy, the Company is focusing on a broader directional point of view and metrics it believes are key to the long-term health of the Company. In addition, the Company is not planning to provide regular quarterly updates to its annual targets, which for fiscal year 2015 are:

• Sales growth over 9%
• Comparable store sales growth in the low to middle single digits
• Square footage growth of 9% to 10% based on 38 to 42 new stores, including five to six relocations
• EBITDA margin of approximately 9%
• ROIC greater than 14%

The Company expects to continue its value strategy and to make additional investments in areas such as technology, marketing, and new and existing stores. The Company believes this is the right strategy to drive sales growth over the longer term. Reflecting its ongoing value efforts, the Company expects a greater decline in gross margin, excluding LIFO, in fiscal year 2015 than in fiscal year 2014. The Company expects to maintain expense discipline and improve its cost structure, with the biggest savings coming from internal distribution, coordinated purchasing and labor leverage. For fiscal year 2015, the Company expects annual diluted earnings per share growth in line with or slightly higher than sales growth.

The Company expects store openings to be spread fairly evenly throughout the year, with the seven former Dominick's locations re-opening as Whole Foods Market stores in the last three quarters of the year. The Company notes that average weekly sales and gross profit as a percentage of sales are typically highest in the second and third fiscal quarters, and lowest in the fourth fiscal quarter due to seasonally slower sales during the summer months. Gross profit as a percentage of sales is also lower in the first fiscal quarter due to the product mix of holiday sales. The Company also notes that Easter will fall in the second quarter of fiscal year 2015 versus the third quarter of fiscal year 2014, positively impacting comparable store sales growth in the second quarter and negatively impacting comparable store sales growth in the third quarter by an estimated 50 to 60 basis points.

Other Company News

• Whole Foods Market takes stand on key agricultural issues with new Responsibly Grown produce rating system 
• Whole Foods Market launches first-ever national brand campaign 
• Whole Foods Market and Instacart partner to offer one-hour delivery across 15 major U.S. cities 
• Whole Foods Market is first national supermarket to accept Apple Pay 
• Whole Foods Market curates exceptional wines for home delivery with launch of new Wine Club
• Whole Foods Market cheese expert receives French Order of Agricultural Merit award 
• 90 Whole Foods Market cheesemongers earn Certified Cheese Professional™ title 
• Whole Planet Foundation teams up with 'The Hunger Games: Mockingjay Part I' to fight poverty

About Whole Foods Market

Founded in 1978 in Austin, Texas, Whole Foods Market is the leading retailer of natural and organic foods, the first national "Certified Organic" grocer, and uniquely positioned as America's Healthiest Grocery Store^TM. In fiscal year 2014, the Company had sales of approximately $14 billion and currently has 401 stores in the United States, Canada, and the United Kingdom. Whole Foods Market employs approximately 87,000 team members and has been ranked for 17 consecutive years as one of the "100 Best Companies to Work For" in America by Fortune magazine. For more information, please visit www.wholefoodsmarket.com/values-matter.

Disclaimer on Forward-looking Statements

Certain statements in this press release and from time to time in other filings with the Securities and Exchange Commission, news releases, reports, and other written and oral communications made by us and our representatives, constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are often identified by words such as "anticipate," "believe," "intend," "estimate," "expect," "continue," "could," "can," "may," "will," "likely," "outlook," "depend," "should," "would," "plan," "project," "predict," "forecast," "goal," "target," "sustain," "seek" and similar expressions, and include references to assumptions and relate to our future prospects, developments and business strategies. Except for the historical information contained herein, the matters discussed in this analysis are forward-looking statements that involve risks and uncertainties that may cause our actual results to be materially different from such forward-looking statements and could materially adversely affect our business, financial condition, operating results and cash flows. These risks and uncertainties include general business conditions, changes in overall economic conditions that impact consumer spending, including fuel prices and housing market trends, the impact of competition and other factors which are often beyond the control of the Company, as well other risks listed in the Company's Annual Report on Form 10-K for the fiscal year ended September 29, 2013 and risks and uncertainties not presently known to us or that we currently deem immaterial.

We wish to caution you that you should not place undue reliance on such forward-looking statements, which speak only as of the date on which they were made. We do not undertake any obligation to update forward-looking statements.

The Company will host a conference call today to discuss this earnings announcement at 4:00 p.m. CT. The dial-in number is (877) 888-4314, and the conference ID is "Whole Foods." A simultaneous audio webcast will be available at www.wholefoodsmarket.com/company-info/investor-relations.

CONTACT: Cindy McCann
         VP of Investor Relations
         512.542.0204

         Media Contact:
         Michael Silverman
         512.542.3031